Canada’s farmers aren’t carrying a lot of debt compared to their assets, but some farmers are carrying a lot of debt compared to their profitability.

That debt might increasingly make it hard for them to get the loans they need to expand, develop or to keep operating.

Those insights arise from work carried out by financial analyst Bertrand Montel on Canadian farm debt, based on the Farm Financial Survey of 2001-15.

While overall farm debt isn’t high, about half the people considered to be farmers have virtually zero debt, while a tiny proportion of farmers carries a huge share of the total debt load and most of the financial stress.

In recent years, the farms that carry the most debt appear to be taking on more debt as they grow and develop, putting some of them in danger of a credit crunch.

“There’s really, really a concentration of debt that is not … commensurate to their share of farm sales,” said Montel, referring to the 14 percent of Canadian farms that carry 70 percent of farm debt but produce only 50 percent of farm product sales.

Financial stress does not generally appear to apply to particular provinces or industries, but arises mostly from the combination of debt levels and relative profitability of individual farms.

The exception is dairy farming, which appears to have a much higher proportion of financially dubious operations. That’s a problem in an industry in which the need to expand for efficiency’s sake is large, but the cost is great, and profits have been hurt by recent prices.

“We may be approaching a kind of tipping point, where a significant number of dairy farmers are facing a financial issue that may lead to discussions with their lender,” said Montel.

That will particularly be the case if the most financially sound farmers are those who are retiring and the financially stressed farmers are younger ones who will need financing to take over retiring farmers’ production.

The notion of financial stress allows farm situations to be looked at beyond a crude examination of whether farms are likely to fall into bankruptcy. Financial stress refers to pressure that may arise from poor finances, such as the inability of a farm to get more loans, face higher borrowing costs or be pushed into liquidating assets or departing an industry.

Most farms are unlikely to ever face bankruptcy, but the stressed pockets could face profound challenges that aren’t revealed in general data.

Statistics Canada’s work provides much of the raw data for the analysis, but Montel wanted to examine farm debt in a more refined and relevant manner, in the way that an agricultural banker would probably look at it.

Montel used some financial ratios popular with lenders and developed his own modelling to break farmers into different sub-groups and clusters.

The work was done independently by Montel, but funded by Farm Credit Canada, which had exclusive access to the analysis for a year after Montel produced it in September 2017. It will now be released publicly and will be presented at the Canadian Agricultural Economics Society’s annual meeting in July.

Montel worked as an agricultural banker and saw that public statistics weren’t revealing the same sort of perspective he saw working inside banks. But he also knew no one bank’s numbers would reveal as comprehensive a picture as would be possible with Statistic Canada’s numbers.

“A lot of the research I got just confirmed some of the things I saw when I was in banks doing agricultural lending,” said Montel.